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CA Intermediate · Advanced Accounting · Buyback of Securities

Kaveri Foods Ltd buys back 2,00,000 fully paid equity shares of ₹10 each at ₹15 per share. The buyback is financed entirely out of reserves, with no fresh issue. Securities premium of ₹6,00,000 is first used to absorb the premium payable, and the balance of the premium is charged to General Reserve. The General Reserve before the buyback is ₹50,00,000. The company then transfers to Capital Redemption Reserve the amount required by the Companies Act. What is the closing balance of General Reserve?

The closing General Reserve is ₹26,00,000. The premium of ₹10,00,000 is met ₹6,00,000 from securities premium and ₹4,00,000 from General Reserve. A further ₹20,00,000, equal to the nominal value bought back, moves from General Reserve to Capital Redemption Reserve, leaving 50,00,000 − 4,00,000 − 20,00,000.

  1. A₹26,00,000Correct
  2. B₹30,00,000
  3. C₹46,00,000
  4. D₹20,00,000

Explanation

Total premium is 2,00,000 × ₹5 = ₹10,00,000; ₹6,00,000 comes from securities premium and ₹4,00,000 from General Reserve. Nominal value bought back is ₹20,00,000, which must be transferred to CRR out of General Reserve. Closing General Reserve = 50,00,000 − 4,00,000 − 20,00,000 = ₹26,00,000. ₹30,00,000 omits the premium charge; ₹46,00,000 omits the CRR transfer.

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